Week 6 Flashcards
(11 cards)
What are bad debts?
The debt is bad (e.g. the customer is bankrupt). We remove the debt from trade receivables (a credit sale) as it is no longer recoverable.
What is a doubtful debt?
Some doubt over the recoverability of the debt. The trade receivables is not adjusted. A provision is required.
How do we deal with bad debts?
Always consider bad debts first. Remove (write off) the amount from the trade receivables account.
Dr Bad Debt Expense (IS)
Cr Trade Receivables (SOFP)
How do we deal with doubtful debts?
We create a provision to offset trade receivables. This is the specific provision:
Dr Bad Debt Expense (IS)
Cr Bad Debt Provision (SOFP)
This note appears in the notes to the SOFP:
Trade receivables
Less Provision
Balance appearing on SOFP
How do we deal with balances that you think will not be recovered (per past experience) but are not sure which ones?
Create a general provision.
Dr Bad Debt Expense
Cr Bad Debt Provison
And for the total provision= General provision + Specific provision
What are Prepayments?
Prepayments are expenses that are paid in advance. The cash is paid now, but benefit of goods or services is received in the next accounting year.
Dr Prepayment
Cr Expense
What are accurals?
Accruals are sales (income) that have not been invoiced yet.
Dr Accruals
Cr Sales
What’s the purpose of stock count?
- Ensures records are accurate
- Check dor damaged goods
- To ensure faithful representation in the accounts
What is the difference between FIFO and LIFO?
FIFO: inventory (recent value), COS (older values)
LIFO: inventory (olde value), COS (Recent values)
LIFO is not permitted in the uk (but is in the US)
What is the Average Cost (AVCO) method?
Assume that all goods are issued at the average price of the inventory held.
What’s the difference between inventory and cost of sales?
- Goods still held part of inventory.
- Goods sold in year are cost of sales.
